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Back to School Finances

Okay parents, we’re a week into the school year. How did you fare with “back to school shopping”? Did you spend a load of dollars or did you plan to avoid the back to school shopping rush by waiting until this weekend to shop?

If you’re still in back to school shopping mode, there’s still a number of ways to be more frugal with your budget in the beginning in the school year. The cost of school shopping continues to increase and can get even more expensive for college and university students.

Let’s take a look at a few simple ways to save money when starting the new school year and throughout the school year.

Take inventory

A common mistake people make every year is not taking stock of the supplies they already have in their home. A lot of the items that we purchased in previous years are still lying around in a drawer or shelf. It can be rare at times that we finish all the pencils or pads of lined paper in one school year as those types of products are often purchased in bulk.

Go on a hunt to find items that have gone unused and put them in a central place where you can take inventory of what you already have.

Include school expenses in your monthly budget

Although most of our foreseen school expenditures happen at the beginning of the year, there are still a number times that we have to dish out some cash throughout the school year. Whether it’s school trips, sports equipment, new clothes, or special school supplies for a course, having a small amount of funds allotted for school expenses can be helpful in addressing those extra costs that come up between September and June of the following year.

Quality vs. Trendy

Pop culture has infiltrated so many aspects of our children’s lives. Kids always want the latest and greatest. So when it’s time to buy clothes or anything that may be needed during the school year, they often gravitate to what has been marketed to them by corporations who are not necessarily concerned about providing the highest quality of products.

The fact is that most trendy clothing and other products are not built to last. Often times they seem to be made to last as long as the fad itself, or even much shorter than that. So when your kids start asking for the latest trendy brand, use that as an opportunity to show them the difference between the often low-quality of the currently hot products with the $100+ logo and the well-made item without a logo that will stand the test of time. It’s a money-management lesson that can last a lifetime.

It’s all about the little things…

  • There’s nothing wrong with the dollar store. The dollar store allows you to get great bargains on things that shouldn’t cost much in the first place.
  • New college text books can get expensive; used ones cost less. In the end, used text books have the same content as brand new text books, except maybe slightly less pretty. Buy used text books on Amazon, eBay, and Half.com.
  • Coupons are your friends. Yes, they are always available. Whether they come in the mail or you find them online, use coupons to cushion the blow to your bank account. Also, don’t forget about price matching at certain retailers like Walmart.

How will the interest rate increase affect your mortgage?

It has been over a month since the Bank of Canada has risen the interest rate for the first time in seven years. The boost in rates would have definitive effects on how borrowers do business with their clients, but probably one of the most affected markets will be the housing market in regards to mortgages.

The consequences of the interest rate increase on your mortgage depends on a number scenarios and where you fit into each of them. Whether you have a variable-rate mortgage or a fixed-rate mortgage, will determine just how the change to interest rates will impact your mortgage situation.

Do you have a variable-rate mortgage?

Approximately one-third of Canadian homeowners have variable-rate mortgages, that mirror the movements of interests rates in the economy. Meaning, they rise and lower in tandem with the general levels of interest rates.

The bump in rates last month will see monthly payments increase for those with variable-rate mortgages. As expected, the Bank of Canada increased the rate by 0.25 of a percentage point, and will most likely continue with that amount for future increases.

Let’s use an example of someone who has a home worth $750,000. Hypothetically, we’ll say they had a minimum down-payment of 10 percent and a variable-rate mortgage with a 5-year term with an interest rate of 1.75 percent and 25 year amortization. Prior to last month’s rate hike, they would have had a monthly payment of $2,864. Now with an increase of 0.25 of a percentage point they would be paying $83 more at $2947 per month. Many money managers are anticipating the Bank of Canada’s key interest rate to jump a full percentage point by the end of next year. In this case, the monthly payments would increase by $341 per month to $3,205.

Do you have a fixed-rate mortgage?

Over 65 percent of Canadians have a fixed-rate mortgage, which means the rate remains locked for the term of the loan.

The interest rate hike affects these types of mortgages differently as fixed-rate mortgages usually follow bond yields, which is the amount of return investors receive on bonds. However, investor sentiment about what the Bank of Canada does with it’s key rate strongly influences bond yields. Hence, last month interest rate hike will potentially affect fixed-rate mortgages. Prior to the rate change, the simple mention of the possible hike affected bond yields, by resulting in an increase of rates for 5-year fixed mortgages in June and July. This could mean that Canadian homeowners with a fixed-rate mortgage will potentially pay a higher interest rate when they refinance their loan.

The take away…

  • Even though rates on fixed-rate mortgages are on the increase, they are still a lot lower than they were five years ago. So people with a 5-year mortgage that is coming up for renewal in the near future may get a lower rate than previously available
  • If you’re looking for a house right now, you may want to look into a pre-approved 5-year mortgage, so that it guarantees today’s fixed rate for 120 days

Cell Phone Regulations That May Save You Money

Twenty years ago, who would have ever thought that cell phones would have become a staple in almost every household, regardless of economic status and other demographics. The advent of the digital age was ushered in largely by mobile devices, but none more prolific than the cell phone.

 

Many people literally “live” on the their cell phones. Even some high school students find that a cell phone is a compulsory tool in classes, as school boards find it more cost effective to have students use their own cell phones for in-class research instead of the school providing computers.

 

Regulations to reduce wireless fees 

 

This year the Canadian Radio-television and Telecommunications Commission (CRTC) is re-examining ways to tighten rules around wireless cancellation fees. Anyone who has tried to cancel their cell phone plan before their contract end date knows that cell phone service providers have been known to charge absurd amounts for termination fees.

 

The CRTC is reviewing the effects of its previous code that was introduced in 2013, which reduced the maximum length of a wireless contract from three years to two years. It also capped the overage charges carriers could enforce for roaming and data usage, and presented parameters around clear and simple information for users. Consumers could now enter a contract that was lite in confusing jargon that seemed to make resolving issues with service more complicated.

 

After three years, what has changed?

 

The CRTC thought that the new code would lower wireless pricing, but that has not been the case. To the contrary, one of the unforeseen results of the 2013 regulations were higher phone bills as cell phone providers felt they were forced to recoup costs of subsidized smartphones over a shorter period of time. Rogers Inc has maintained that consumers should have the option of a three year term so the cost of new hardware being offered for zero-dollars is amortized over 36 months, thereby allowing carriers to offer lower costs on rate packages and recover the cost of hardware offered for free as contract incentives.

 

Another notable difference has been the drop in complaints to the authorities responsible for telecom company complaints. There’s apparently been a 17 percent drop in complaints from cell phone users with wireless plans as per a recent survey conducted by the CRTC. This is down from 26 percent in 2014.

 

Consumer advocacy groups such as the Public Interest Advocacy Centre (PIAC) maintain that although the 2013 code has not brought down wireless pricing, it has curtailed charges of roaming and data overages. The PIAC also notes that clarity in early cancellation fees policy also helped reduce complaints, so overall the response has been positive as issues with overage charges and early cancellation penalties make up a majority of costumer grievances.

 

More changes wanted to save your money… 

 

Although the response has been good, consumer groups believe things could still be better. They believe there are still some important changes that need to be made that will help people save money on their cell phone bills.

 

Companies provide tools that notify customers when they exceed data charges, and provide options to upgrade their data plans. However, account holders have complained that the same tools allow children to accept data charges at the click of a button, resulting in astronomical monthly bills.

 

Secondly, the current rules puts a $50 monthly limit on data overages, but consumer advocates suggest that the cap should apply to individual accounts, not individual wireless devices. This applies particularly to family plans, as a family of four could potentially pay up to $200 in overage charges.

Rich Dad, Poor Retired Dad: Retirement Savings or Paying Off Your Mortgage Early

Fatherhood brings on a variety of new responsibilities. Children obviously bring a higher level of financial obligation and being gainfully employed to provide for your family is paramount. But what happens when the days of your “9 to 5” end and you no longer have employment income?

Retiring comfortably requires adequate cashflow to cover your monthly living expenses, medical fees and whatever else you need to make your retired life more comfortable. People often wonder if it makes more sense to pay off their mortgage early or accumulate retirement savings?

Wisdom of the ages…

It has been common for young newly weds to purchase homes with massive mortgages. Once the reality of paying off the huge debt comes to fruition, they begin to worry about how much of a debt they owe and start to scramble for any cash to put towards their mortgage.

This may sound very familiar to you, as it may be the path you have taken with your family. However, if you ask any retired person who decided to pay off their mortgage early instead of saving for their retirement, they would most likely tell you that the decision proved to be financially detrimental to them in their Golden Years. The defining factor is that if young couples chose to save for retirement, their mortgage would eventually vanish on its own.

What about increasing your mortgage payments?

A 2014 survey by the Canadian Association of Accredited Mortgage Professionals, showed that three years ago 15 percent of home owners had been increasing the amount of their mortgage payments in the preceding five years. This is down from 19 percent in the 1990’s and late 2000’s. The trend has shifted to home owners paying down their mortgages with lump-sum payments. Over 16 percent of owners did this within the last 10 years and the rate continues to rise since the 1990’s.

The problem with increasing the amount of your monthly mortgage payments is that it limits the flexibility you have in managing your household cashflow. Hence, lump-sum payments have become increasingly attractive. Another benefit of lump-sum payments is a hedge against the risk rising interest rates. Also a significant reduction of a mortgage balance over time through lump-sum payments will ensure you have less to refinance when its time to renew. Likewise, periodically larger payments are most effective in the first 2 years of your mortgage when payments go towards interest more than the principal.

Saving for retirement is the right plan

As you get the most benefit from repaying your mortgage in the earlier stages of home ownership, you get equivalent results when applying that logic to retirement savings. The more you contribute towards your retirement savings when you’re young, the more more profitable the contributions are once it’s time for you to retire. Which also means if you do pay off your mortgage early, there may not be enough time for you to catch up on years of not contributing enough to retirement savings.

Another bad idea is using your retirement savings to pay off your mortgage. As with all of your key investments, whether registered education savings plans for your kids or savings bonds, do not use savings to pay off your mortgage earlier.

Things to remember…

•    Stick to your plan. Resist the temptation of taking on new large debts. If the opportunity to buy a larger house or a new car comes along, be sure that your income can support the new debt as well as long-term savings, monthly living expenses and mortgage payments.

•    Always have Emergency Funds. If you choose to make lump-sum payments on your mortgage, you should ensure that you still have adequate emergency funds saved in case something unexpected happens that negatively affects your cashflow.

Money and Maternity Leave

The joys of parenthood are countless. Bringing a new life into the world changes everything. Yes, the sleepless nights, dirty diapers and the incessant crying of neonates can be a bit much to take, but the bliss of seeing your child grow outweighs all of the woes of early parenthood.

 

For the working woman, the pressure of taking care of a newborn is compacted with the financial challenges of a diminished income while on maternity leave. Many Canadian families have struggled with the change in cashflow when only one partner is working, and for single-parent households the cash crunch can be even more stressful and mentally debilitating.

 

2017 Federal Budget extends Parental Leave to 18 months 

 

In March of this year, the Liberal government extended parental leave to 18 months from 12 months. This will help many parents find less expensive child care as spaces for toddlers tend to cost less than children up to 18 months old. However on the flip side, parents who choose to stay home longer will have to deal with lower Employment Insurance benefit at rates of 33 percent of their average weekly earnings, instead of the previous rate of 55 percent.

 

Additional Caregiver Benefits too?

 

Within the new budget, the feds also changed EI to introduce a new caregiver benefit that is intended to aid families who are enduring serious injuries and illness that are not life-threatening. Previous EI legislation only applied to situations where was a “significant risk of death”. For example, the new benefit would extend up to 15 weeks in a situation in which a family member is incapacitated in a car accident but is expected to make a full or partial recovery.

 

Earned income on leave will be taken back

 

Remember Mom: If you work while receiving EI maternity benefits, the government will deduct the money you earn from your benefits; dollar for dollar at that. While receiving EI parental benefits you are permitted to earn up to $50 per week or 25 percent of your weekly benefit (depending on which one is higher) before any deductions are made.

 

However, the federal government has launched a Working While on Claim pilot program that will end August of 2018 in which once you served the waiting period, claimants are able to keep 50 cents of their benefits for every dollar they earn while on claim, up to 90 per cent of the weekly insurable earnings used to calculate the EI benefit amount.

 

How to survive the Mat-Leave Cash Crunch

 

Discuss your finances with your partner on a regular basis. This has been and will always be a team effort. Even if one partner is more responsible for managing money for the household, you must both make an effort in keeping up with how much money is coming in and out of the home.

 

Start tracking your expenses by looking at how money is spent over a month. Throw every receipt into an envelope, pencil case, or zip-lock bag and add everything up. If the result shows there is more of an outflow than an inflow, you need to begin cutting back.

 

Understanding the difference between needs vs. wants, allows you to prioritize your expenses. With the exception of food, housing, transportation costs and medication, everything else would be considered a “want”. Going out for dinner and a movie, needs to be replaced with meal planning and enjoying a movie at home.

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